Firms’ reactions to public information on business practices: The case of search advertising

Justin M. Rao () and Andrey Simonov ()
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Justin M. Rao: HomeAway, Inc.
Andrey Simonov: Columbia University

Quantitative Marketing and Economics (QME), 2019, vol. 17, issue 2, No 1, 105-134

Abstract: Abstract We use five years of bidding data to examine the reaction of advertisers to widely disseminated press on the lack of effectiveness of brand search advertising (queries that contain the firm’s name) found in a large experiment run by eBay (Blake et al. 2015). We estimate that 11% of firms that did not face competing ads on their brand name keywords, matching the case of eBay, discontinued the practice of brand search advertising. In contrast, firms did not react to the information pertaining to the high value and ease of running experiments—we observe no change in the experiment-like variation in advertising levels. Further, while 72% of firms had sharp changes in advertising suitable for estimating causal effects, we find no correlation between firm-level advertising effects and the propensity to advertise in the future. We discuss how a principal-agent problem within the firm would lead to these learning dynamics.

Keywords: Advertising effectiveness; Search advertising; Firms’ behavior (search for similar items in EconPapers)
JEL-codes: D83 L21 L81 M37 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11129-018-9203-7

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